Generally Accepted Accounting Principles (GAAP) refer to common principles, standards and policies for accounting as defined by standard setting board with aim to improve consistency, clarity and comparability of the financial information being prepared and reported.
Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP). Relevant Information. Affects the decision of its users. Reliable Information. Is trusted by users. Financial accounting in governed by a set of rules we call Generally Accepted Accounting Principles, or GAAP for short. Generally accepted accounting principles identify three major characteristics of information. First, the information must be relevant. Relevant information impacts the decision of the informed user for financial information. Second, the information must be reliable. Finally, the information must be comparable. Comparability helps us compare financial information from one period with that of the next period. – Organizations that govern accountants and state standards that they should adhere to: Financial Accounting Standards Board (FASB)- A Private independent organization that establishes standards for financial reporting in the United States. The FASB, is responsible for determining GAAP (Generally Accepted Accounting principles)- which are the authoritative guidelines that define accounting practice at a given time. Securities and Exchange Commission- The Government body that is responsible for regulating reporting practices for public corporations that are responsible for selling stocks and bonds. Internal Revenue Service- Government agency that defines tax related rules and accounting issues in the United States. Comparable Information. Is helpful in contrasting organizations.
For financial reporting in a particular territory, additional requirements may be applicable such as:
- Requirement of local corporate laws
- Requirement of local stock exchange regulations
- Local or International Accounting Standards and interpretations as and to the extent accepted in that particular jurisdiction